UK PEOPLE ONLY: I only just turned 18 and recently stopped being a student. My online income from websites and freelance writing is beginning to be a little more than pocket money (aka my full time income) so I need to register as self employed and start paying tax, national insurance etc. When you fill out your forms I assume you need records and proof of your income and expenses right? But it's this proof that is confusing me. Will I literally have send them physical receipts? How does this work if almost all of my income is through paypal. I've kept about 3 months of finances in a spreadsheet, but it was more for me than to show a taxman. It's hardly perfect. What exactly do I do here? To be honest I don't think I even earn enough for it to be taxable just yet but I still need help with this...
The normal Personal Allowance is £6,035 per year, so you should be getting prepared to pay tax if you are earning above this. (Now at 20%, as the 10% rate has gone.) Not sure that it's a problem if your records are electronic. Really, a lot of sole traders or small businesses will be being paid electronically these days (even if it's more likely to be by BACS bank transfer rather than via Paypal). Hopefully someone with more experience of this than me can advise you if screen prints of your Paypal account will suffice. The other thing you may need to think about eventually is registering for VAT -- but the threshold for this is £67,000 per annum. So probably not an issue just yet... If the idea of rummaging around the HM Revenue and Customs website doesn't appeal, it might be worth seeing an accountant about all of this. His fees will likely be tax-deductible!
Thanks, I think what I'm going to do is go back and do a full profit and loss account for the financial year so far, so I have a better grasp of my money thus far.
I've just found and extremely annoying problem. Paypal transaction fees have to be counted as expenses so now I have to go back and calculate the gross amount in UK pounds for each transaction!
Makes sense, I suppose -- they are sort of like bank charges, except that you pay them each and every transaction, rather than at the end of the month. They should be deductible against tax, however.